Are Guns a Good Investment?

NEW YORK (MoneyTalksNews)Like many things, guns can be both collectible and profitable. But before you pull the trigger, understand the risks as well as the rewards.

Would you want to own a gun not just as a weapon, but an investment? Gun sales have been rising for several years, and prices for assault rifles and ammunition have gone up.

In the video below, Money Talks News founder Stacy Johnson takes a look at whether guns are worth approaching as investment. Check it out, then read on for more.

Pros of investing in guns

There's plenty of demand. In the beginning of 2013, background checks for prospective firearms buyers through the National Instant Criminal Background Check System increased 44 percent from the prior year, according to NBC News.There were 9.5 million more NCIS checks in 2012 than in 2006, says the FBI.

Also, says The Street, more wealthy investors are taking an interest in the market of high-end collectible guns.

It's an investment you can use. While it's not recommended to regularly take unique, antique or collectible guns to the firing range, a gun likely won't lose its value if it's well-maintained.

Some weapons are a solid bet.Time says British shotguns by makers like Holland & Holland increase in value by 3 percent to 5 percent a year. The value can get a big boost depending on who previously owned the gun. Time added:

At Holt's December sale, a 12-gauge Purdey once owned by champion U.S. shooter Russell B. Atkins had an estimated value of $24,000 to $32,000  and sold for $52,800. Then again, the Boss gun that Gardiner sold for $134,400 in December achieved its record price because of the quality of the firearm, not because the seller was legendary guitarist Eric Clapton.

A small pistol that John Dillinger carried in his sock auctioned for $95,600, more than twice the original estimate, according to The Street.

Cons of investing in guns

There's no guarantee values will increase. When it appeared that Congress might re-enact the 1994-2004 ban on assault weapons like the AR-15, demand spiked, pushing the price up by hundreds of dollars, according to The Huffington Post.

However, price spikes don't last. In a study that evaluated a two-year period after the ban was originally enacted (weapons already in existence were grandfathered in), according to the National Institute of Justice:

The research shows that the ban triggered speculative price increases and ramped-up production of the banned firearms prior to the law's implementation, followed by a substantial postban drop in prices to levels of previous years.

This isn't surprising. When something is relatively simple to make, like guns, supply will ultimately meet demand. If Congress outlaws AR-15-style rifles, less supply will lead to higher prices if existing weapons are grandfathered in. But if they don't, supply will catch up with demand, making price spikes temporary.

Other disadvantages:

Traditional investment vehicles, like an IRA or 401(k), can offer tax deductions. As with other collectibles, there's no tax advantage to investing in guns.

You've got to spend more for proper, safe and secure storage.

If the law is changed so no new guns can be made, but those remaining are legal, prices will go up. But if a gun you own is entirely outlawed, its legal resale value may drop.

How to invest in collectible guns

There's a big difference between buying an AR-15 because you think it will be outlawed and investing in collectible guns: one is a gambling on what Congress will do, the other is buying something unique and hoping its value increases over time.

If you'd like to gamble on Congress, you don't need expertise: just knowledge of Federal gun sale laws. But if you'd like to collect guns, make yourself an expert or find someone who is.

Then learn which guns are likely to increase in value. Generally speaking, those who invest in collectible guns recommend you look for old guns by famous makers that are in just-like-new condition and come with the original box. Don't fire it.

If you want to get into investing in guns ... it's all about research, education, and jumping on it when the moment strikes. Then you have to have patience. Decades worth.

Still interested? An article in Outdoor Life about investing in shotguns offered these three tips:

"Trust your sense of style and taste."Author Jim Carmichel says if you do, you'll still enjoy owning it if it proves to be a lousy investment.

Buy guns that have a proven track record of value. Take the Model 21 Winchester, he says:

Nowadays you're lucky to find a good used 12-gauge for $3,500. If you had bought the same gun new 10 or 20 years ago, you would have made a solid 10 percent per annum on your investment, in addition to owning and using a shotgun that says a lot about who you are.

"Buy the best you can afford plus a little."

Karen Datko contributed to this post.

Subscribe by email

Like this article? Sign up for our email updates and we'll send you a regular digest of our newest stories, full of money saving tips and advice, free! We'll also email you a PDF of Stacy Johnson's '205 Ways to Save Money' as soon as you've subscribed. It's full of great tips that'll help you save a ton of extra cash. It doesn't cost a dime, so why wait? Click here to sign up now.